Canadian Employment Laws: A Complete Guide for Global Companies

Canada’s strong economy, skilled workforce, low corporate tax rates, and access to large trade networks make it an ideal market for global companies to invest in and grow.

However, unlike in the United States, where the Department of Labor is the driving force behind new employment regulations, federal regulations in Canada only govern select industries, while provincial laws regulate all others. 

Foreign companies expanding to Canada or hiring local talent are subject to different employment regulations, depending on their industry and the province where they do business.

Fortunately, there are ways to simplify compliance when expanding to Canada. Read this guide to learn everything you need to know about navigating Canadian labor laws and reducing compliance risks along the way.

Employment contracts in Canada

Like its southern neighbor, Canadian employment law does not require written work contracts. But unlike in the U.S., at-will employment is forbidden in Canada. 

Various employment contracts are permissible in Canada, including fixed-term, indefinite, seasonal, part-time, and internships. Below we discuss the two most common employment contracts in the country: fixed-term and indefinite contracts.

Fixed-term contracts

Fixed-term contracts in Canada are for a finite period and specify the end date of the working relationship in the contract. They can be for any period of up to three years, and employers can extend them multiple times. 

Canadian employers often use fixed-term contracts to hire talent for project-based work or to fill an employment gap, such as when an employee takes maternity leave. 

This contract shouldn’t be confused with fixed-term contractor agreements. While contractor agreements usually specify an end date, they don’t guarantee the full breadth of employment rights that Canadian fixed-term employment contracts do. 

Tip: Including an early termination clause in your fixed-term employment contract allows you to terminate the working relationship early in case it isn’t a good fit. 

Indefinite contracts

Indefinite contracts, also known as permanent contracts, are for an indefinite period with no specified end date to the working relationship. If a work contract doesn’t clearly state the end date, Canadian employment law classifies it as indefinite. 

Because they usually last longer than fixed-term contracts, indefinite contracts often guarantee the employee additional rights, such as termination notice and compassionate care leave.

Remember: In Canada, contract terminology is not the only factor determining the contract type an employment relationship falls under. The overall employment character ultimately determines whether or not a contract is fixed-term or indefinite.

Consider an individual who works under a series of fixed-term contracts for one entity for several years. Canadian courts will consider this working relationship indefinite and mandate all associated employee obligations, like a termination notice and relevant entitlements.

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Employment rights in Canada

The Canada Labour Code establishes labor protections for a limited number of industries across the nation, including air transportation, radio broadcasting, and telecommunications. 

For other industries, each province is free to set its own minimum requirements. Because of this, businesses in Canada are subject to different regulations depending on the industry in which they operate.

Below we provide a general list of the minimum labor protections and statutory benefits that employees are entitled to across Canada.

Working hours and overtime

A standard workweek in Canada is 40 hours, Monday to Friday, and a standard workday is 8 hours in a 24-hour period.

Any number of hours an employee works beyond the standard minimum is overtime, which entitles the employee to 1.5 times their regular wage. However, overtime regulations vary across provinces and industries. 

For instance, a standard workweek in Ontario is 44 hours, while in British Columbia it’s 40, and employers in British Columbia calculate overtime pay according to various structures, either daily or weekly, depending on individual circumstances. 

To avoid fines and ensure compliance with Canadian work-hour and overtime regulations, many foreign companies partner with a third-party legal expert, such as an employer of record (EOR), when expanding to the country.  

Minimum wage

The federal minimum wage in Canada is CA$16.65 per hour. However, this wage only applies to employees working for businesses in federally regulated industries. 

Employees in other industries are subject to provincial minimum wages, which are often lower than the federal minimum wage. For instance, the provincial minimum wage in Manitoba is CA$13.50 per hour, and the minimum wage in Saskatchewan is CA$14.00 per hour. 

Statutory benefits

Under Canada’s statutory social security program, all employers must provide the following  minimum statutory employee benefits:

• Canada Pension Plan (CPP). This is a retirement plan for all employees across Canada, except in Quebec. Employees in Quebec receive similar coverage from the Quebec Pension Plan (QPP).
• Federal employment insurance. This fund provides income to employees in the event of unemployment due to illness, pregnancy, or caring for an ill or injured family member.
• Provincial health insurance. The Canadian federal government helps fund basic medical care for all employees across the country, although coverage varies from province to province.
• Provincial workers’ compensation. Workers’ compensation in Canada provides medical treatment and salary protection for employees who incur workplace injuries or illnesses. Policy terms vary by province, and the benefits depend on the industry in which the employee works.

On top of these statutory minimums, many employers in Canada offer their employees supplemental benefits, such as additional health insurance and group-registered retirement savings, as a strategy to attract and retain top talent.

Probationary period

Canadian employment law allows employers to use probationary periods in their work contracts, with the average period ranging from three to six months, depending on the province. Three months is the most common.

To avoid unexpected headaches down the road, prudent employers often specify the probationary period length and its associated termination policies in the employment contract before starting a work relationship. 

While probationary periods are most appropriate for indefinite contracts, employers in Canada can add early-termination clauses to fixed-term contracts, which serve a similar purpose.

Termination and severance

Termination and severance in Canada vary drastically depending on the industry and province in which an individual works. Employees in federally regulated industries are entitled to two weeks’ written notice or two weeks’ pay instead of notice if termination is without just cause. 

Mandatory severance payments in these same industries amount to two days’ worth of wages for each year of employment, with a minimum of five days. In other industries, employees are subject to the provincial labor law, which varies across provinces. 

For example, the minimum notice period in Alberta ranges from one to eight weeks, and severance pay can be from one week to 24 months’ worth of pay, depending on the employee's tenure with the company.

Conversely, notice periods in Nova Scotia can be from one to 16 weeks, with severance pay ranging from one to eight weeks’ worth of wages.

Employers may terminate employees without notice or severance pay during probationary periods or when the termination is for just cause, such as a conflict of interest, theft, or gross misconduct. 

Retirement

All employees in Canada over 18 must make monthly contributions to the Canada Pension Plan (CPP). Employers and their employees share the cost evenly, which applies to annual income between CA$3,500 and CA$64,900.

While the retirement age in Canada is 65, employees may continue working and accruing benefits until they are 71. 

The CPP applies to employees and employers across all of Canada, except in Quebec, where the Quebec Pension Plan (QPP) provides similar benefits. 

Rest days

The federal Canada Labour Code entitles employees nationwide to one rest day per workweek, one 30-minute break per five consecutive hours of work, and at least eight continuous hours of rest between each shift.

Work break regulations vary across provinces. However, provincial law cannot provide less than the federal mandate.

Leave entitlements

All employees in Canada are entitled to sick, annual, and parental leave. We discuss each of these leave entitlements in detail below.

Sick leave

Employees in federally regulated industries receive 10 days of paid annual sick leave. However, sick leave entitlements for employees in other industries vary from province to province. 

In British Columbia, employees receive 5 days of paid sick leave, plus 3 days of unpaid sick leave annually. However, Alberta, Saskatchewan, and Manitoba provide no minimum, leaving it up to individual employers. 

Among the provinces that do guarantee sick leave, it usually ranges from two to five days, with some provinces providing additional days and exceptions.

Employees in federally regulated industries nationwide, as well as employees in other industries located in some provinces, such as Alberta and Quebec, are also entitled to unpaid long-term illness and injury leave, which usually ranges from 16 to 24 weeks. 

Annual leave

Employees in federally regulated industries receive two to four weeks of paid annual vacation, depending on how long they have worked for their current employer. 

Annual leave for employees in other industries varies from province to province but typically ranges from two to four weeks.

Parental leave

Pregnant individuals in federally regulated industries in Canada receive 15 weeks of maternity leave for pregnancy, childbirth, and adoption paid at 55% of their standard earnings. 

Each parent then receives 63 weeks of additional parental leave to care for their child after the birth or adoption. Parents must choose between standard parental leave, paid at 55% of earnings for up to 40 weeks, or extended parental leave, paid at 33% for up to 69 weeks. 

Employees in other industries are entitled to maternity and parental leave according to provincial laws, which often closely resemble the above-mentioned benefits.

Read more: Complete Guide to Paid Maternity Leave Around the World

Discrimination protections in Canada

Canada has a strong framework of anti-discrimination laws that protect workers across the country from discrimination based on gender, race, ethnicity, and other grounds. Discrimination protections are significantly more robust in Canada than they are in the U.S. 

The following three pieces of legislation comprise the main pillars of Canada’s anti-discrimination law:

• The Canadian Human Rights Act. This act protects Canadians from discrimination when they are employed by the federal government, First Nations governments, or federally regulated private companies.
• The Employment Equity Act. This act requires employers from federally regulated industries to provide equal employment opportunities to women, Aboriginals, people with disabilities, and minorities.
• The Canada Labour Code. This is an overarching body of legislation that regulates employment rights across all federally regulated industries in Canada, covering issues such as union certification, workplace safety, and employment standards.

Each province across Canada also has discrimination protections in place for employers and employees in non-federally regulated industries. 

Public holidays in Canada

In addition to annual vacation leave, all employees in Canada are guaranteed roughly 10 paid annual public holidays, called general holidays, depending on the province and industry in which they work. 

Employees of federally regulated businesses across Canada are entitled to the following 10 paid general holidays:

Some of Canada’s 13 provinces and territories observe a different number of general holidays, though each region usually recognizes around eight to 10. 

For instance, employees in Manitoba receive a paid day off for Louis Riel Day, and Saskatchewan celebrates Family Day, both of which fall on the third Monday of February.

13th-month pay in Canada

While some countries, such as Mexico, have provisions for a 13th-month salary, which often serves as a December holiday bonus, Canada has no such mandates nor is it standard practice across the country.

However, it’s customary for Canadian employers to offer incentive-based bonuses for managers or executives based on individual or company performance.

Labor unions in Canada

Labor unions have a strong presence in numerous industries in Canada, ranging from manufacturing, construction, and mining to nursing, education, and journalism. 

There are over 100 different unions in Canada, one of the largest being the United Food and Commercial Workers, which has members in the agriculture, culinary, marine, and forestry industries. Nearly 30% of all Canadian workers belong to a union.

The strong labor union presence in Canada creates an additional compliance risk for foreign companies interested in expanding to Canada or hiring local talent there. 

To avoid fines, litigation, and other noncompliance penalties, global companies expanding to Canada or hiring local talent must be diligent when navigating complex labor union regulations in their industry, or better yet, partner with a third-party legal expert specializing in Canadian employment law.

Compliantly hire employees in Canada with Velocity Global

Navigating Canada’s provincial and federal employment laws without support from a third-party legal expert exposes you to hefty noncompliance penalties. Protect your business and eliminate the risk by partnering with Velocity Global.

As an Employer of Record (EOR), Velocity Global simplifies global expansion and international hiring efforts across more than 185 countries, including Canada. By partnering with us, you eliminate the need for entity establishment and ensure compliance with local labor and employment laws in each of your target markets.

Our EOR solution can also support every aspect of your global expansion, from hiring, onboarding, immigration, and compliance to running global payroll, administering locally tailored benefits plans, and providing ongoing HR support for your global workforce. This way, you can expand and hire globally without the added burden.

Read our guide on hiring employees in Canada to learn more about quickly and compliantly hiring top Canadian talent from anywhere in the world.

Or contact us today to kickstart your expansion and start engaging top Canadian talent with ease.

Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.